California Based P2P Trader Convicted of Illegal Money Transmission(247cryptonews.com)
247cryptonews.com
California Based P2P Trader Convicted of Illegal Money Transmission
https://247cryptonews.com/california-based-p2p-trader-convicted-of-illegal-money-transmission/
60 comments
The part about these convictions that bugs me is that some of the people getting in trouble were definitely not aware that they were breaking the law. It surprises a lot of people when they find out it's illegal to buy and sell bitcoin for cash to strangers in the US like this (that is, with no license or reporting or discrimination). I hope most of those convicted don't get jail time unless they truly knew that it may have been coming.
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Ignorance of the law is not a defense, and this person had the resources to engage an attorney (at $300k/year of income).
It’s not a defense but traditionally this was balanced by laws requiring a mens rea component - or a guilty mind.
With the rise of strict liability crimes for everything this balance is no longer in place. The Overton window has moved dramatically from where it was when that phrase was coined.
With the rise of strict liability crimes for everything this balance is no longer in place. The Overton window has moved dramatically from where it was when that phrase was coined.
I don't think they made that much. At 6-9 million in transfers, that would be a 10-15% commission, which feels quite high.
But maybe that is typical when doing illegal transactions.
But maybe that is typical when doing illegal transactions.
10-15% sounds reasonable. For example currently Bitcoin trades at $6325 on Coinbase, while cash offers on LocalBitcoins are at around $7000 per BTC.
Disclaimer: unless you're the police.
Systemic issues are behind the scope of this thread.
I have to think that such unawareness is at least partially willful. They are no doubt aware that the government regulates a lot of things and that financial services in particular have a lot of regulation. It didn’t occur to them that they might need to find out what applies to them?
What other commodities do I need to get a license to buy/sell?
Off the top of my head: food, cars, stocks, land, gasoline, scrap metal.
At a small enough scale and not in government-heavy states all of those are legal to do without any sort of license. When you start doing it regularly is when you need licenses.
Does selling $2 million a year or more qualify as regularly?
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Really, you make $300,000 a year and report no taxes and you think you're not doing something illegal?
Would her paying taxes make this less illegal? If she was dealing with gold/diamonds instead of bitcoin would it be legal?
> Would her paying taxes make this less illegal?
Pedantically, yes--there would be one fewer crimes committed. Practically, not reporting income hints at knowing its source isn't entirely legal.
Pedantically, yes--there would be one fewer crimes committed. Practically, not reporting income hints at knowing its source isn't entirely legal.
> If she was dealing with gold/diamonds instead of bitcoin would it be legal?
IANAL but surely laundering known drug money with gold/diamonds/beanie babies/bitcoin are all illegal.
IANAL but surely laundering known drug money with gold/diamonds/beanie babies/bitcoin are all illegal.
It doesn’t matter how you launder money. It could have been Applebee’s gift cards.
It's not unlike those who capriciously decide to day-trade then run afoul of taxation rules and limitations of operation so they end up losing a lot more money than expected.
Some like the individual in the article will end up being examples to others.
Some like the individual in the article will end up being examples to others.
This reminds me of AirBnB hosts or Uber drivers violating various laws. The platform (LocalBitcoins in this case) should be educating people about these laws so they can understand the risks of what they're doing.
According the filing (linked elsewhere in this thread) she knowingly took funds (from an undercover agent) that she believed to be from drug sales... e.g. she intentionally provided a money laundering service.
But was still charged with more generic offences that have nothing to do with drugs.
That’s what those generic offenses are designed for.
There’s nothing morally wrong with moving money around for people without validating their identity.
But if you make it illegal than almost everyone doing it will be doing it to launder money or evade taxes, so if you catch someone at that, it’s almost certain that they have either committed another crime or have assisted someone else at committing a crime.
The alternative to having financial crimes like that is that it becomes impossible to convict the upper levels of crime organizations of anything, and you just end up arresting low level people for crimes where you have immediate physical evidence.
There’s nothing morally wrong with moving money around for people without validating their identity.
But if you make it illegal than almost everyone doing it will be doing it to launder money or evade taxes, so if you catch someone at that, it’s almost certain that they have either committed another crime or have assisted someone else at committing a crime.
The alternative to having financial crimes like that is that it becomes impossible to convict the upper levels of crime organizations of anything, and you just end up arresting low level people for crimes where you have immediate physical evidence.
Wouldn't they still be guilty of tax fraud? Making more actions/people criminal just to catch the people that should be criminal more easily doesn't sit well.
It wouldn't necessarily be tax fraud. Criminals are free to declare their income from illegal activities and pay taxes on it.
https://amp.cnn.com/money/2013/02/28/news/economy/illegal-in...
https://amp.cnn.com/money/2013/02/28/news/economy/illegal-in...
That's awesome, thanks. Since declaring it means you're no longer trying to avoid be caught for the underlying crime I don't think it adds to the point I'm skeptical of.
so if you don't know the source of the funds are you still breaking the law?
Ah yes.. it’s full of people in the world earning 300k$ just working 3h/day from home as all the ads say.
This is a very old article published recently. She was sentenced to one year in prison, in July.
Correct: more info in this write up:
https://www.latimes.com/business/la-fi-bitcoin-sentencing-20...
https://www.latimes.com/business/la-fi-bitcoin-sentencing-20...
Not sure how the bitcoin part is relevant. AFAIK it's not a currency even if it wants to be. So same problems and rules should apply to other trading as well.
What if he had been dealing cars instead of bitcoin? A guy comes in, buys a car in cash, drives away. You use the cash to buy more cars, wait for the next guy. You pocket the diff between how much you pay and how much you ask. How do you know the money isn't from a drug dealer? How do you know you're not engaging in illegal money transmission or receiving money from drug traficking?
I'd even say cars are more widely accepted than bitcoin are.
Maybe bitcoin wasn't relevant but the article just failed to emphasize that point.
What if he had been dealing cars instead of bitcoin? A guy comes in, buys a car in cash, drives away. You use the cash to buy more cars, wait for the next guy. You pocket the diff between how much you pay and how much you ask. How do you know the money isn't from a drug dealer? How do you know you're not engaging in illegal money transmission or receiving money from drug traficking?
I'd even say cars are more widely accepted than bitcoin are.
Maybe bitcoin wasn't relevant but the article just failed to emphasize that point.
> What if he had been dealing cars instead of bitcoin?
If you sell a car to someone knowing they paid with cash earned from dealing drugs, and then you proceed to not report that income, yes, it would be illegal.
The unique role of Bitcoin appears to be sociological. The case with cars is highly infrequent. Swap cars with Bitcoin, however, and people seem to think it’s okay.
If you sell a car to someone knowing they paid with cash earned from dealing drugs, and then you proceed to not report that income, yes, it would be illegal.
The unique role of Bitcoin appears to be sociological. The case with cars is highly infrequent. Swap cars with Bitcoin, however, and people seem to think it’s okay.
Those two things are regulated quite differently.
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There exists a cottage industry of individuals acting as money changers for bitcoin and other cryptocurrencies. It can be quite lucrative. This is (was?) a gray market, but judgements like this show the government considers it a black market.
What’s interesting to me is that they didn’t simply nail her for buying and selling bitcoin without a money transmitters license. They also used the undercover agent to explicitly say it was drug money, ensuring worse penalties.
What’s interesting to me is that they didn’t simply nail her for buying and selling bitcoin without a money transmitters license. They also used the undercover agent to explicitly say it was drug money, ensuring worse penalties.
But since when bitcoin has been "money" as acknowledged to any official sense? As far as I can tell, it hasn't. That was my point: if bitcoin isn't currency or money then it's just trading bitcoins like trading any goods, be it fur, cars, or other supplies.
So the case really isn't about bitcoin but someone who took money from illegal sources and washed it clean. And didn't report that income, obviously. That's fine.
The interesting part would be to have in prosecution something bitcoin related that doesn't apply to other goods. And in that case it would be interesting to see why the same would not a problem if the parties were trading something else than bitcoin.
So the case really isn't about bitcoin but someone who took money from illegal sources and washed it clean. And didn't report that income, obviously. That's fine.
The interesting part would be to have in prosecution something bitcoin related that doesn't apply to other goods. And in that case it would be interesting to see why the same would not a problem if the parties were trading something else than bitcoin.
>What’s interesting to me is that they didn’t simply nail her for buying and selling bitcoin without a money transmitters license. They also used the undercover agent to explicitly say it was drug money, ensuring worse penalties.
Creating crime to catch crime is pretty par for the course in federal investigations. The FBI is pretty well known to do it in terrorism cases. The ATF runs their botched illegal gun buying operations that create local crime.
Creating crime to catch crime is pretty par for the course in federal investigations. The FBI is pretty well known to do it in terrorism cases. The ATF runs their botched illegal gun buying operations that create local crime.
I wonder how often the cops get called on the FBI. I know that there was the post 9-11 clownish thing with an FBI informant in a mosque who got banned and reported to the FBI because he was a frothing radical that they wanted absolutely nothing to do with.
IMO Bitcoin is a commodity, not a currency. (Please do not downvote me for the opinion). Regulators and at least some judges have called it a commodity.
e.g.
https://www.cnbc.com/2018/03/07/cryptocurrencies-like-bitcoi...
The charge shouldn't be related to currency trading, but something related to failure to pay taxes on buying and selling commodities.
[edit: As usual, comments on bitcoin expressing a non-evangelist point of view get downvoted.]
The charge shouldn't be related to currency trading, but something related to failure to pay taxes on buying and selling commodities.
[edit: As usual, comments on bitcoin expressing a non-evangelist point of view get downvoted.]
Tax it like property, enforce other laws like it's currency... they get to have their cake and eat it too. It's all for your protection, of course, don't you know.
What do you mean “tax it like property”? Property taxes are only for real estate. Income earned in USD is subject to income tax; capital gains earned speculating on the forex market are subject to capital gains taxes.
Both money transmitter and securities broker businesses require licensing. You can’t sell AAPL to someone in a park for a duffel bag full of cash. They could have gotten her under either theory (currency or investment).
Both money transmitter and securities broker businesses require licensing. You can’t sell AAPL to someone in a park for a duffel bag full of cash. They could have gotten her under either theory (currency or investment).
https://www.irs.gov/newsroom/irs-virtual-currency-guidance
"IRS Virtual Currency Guidance: Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply"
"IRS Virtual Currency Guidance: Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply"
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Cajoling people to follow particular money handling standards and banking practices is an inappropriate use of the power to imprison people.
Anything short of outright fraud should be permitted in a free society. People shouldn't be expected to question their customers to find out where their funds came from, or be prosecuted because unbeknownst to them, a criminal used their services.
The modern regulatory system is draconian and unjust.
Anything short of outright fraud should be permitted in a free society. People shouldn't be expected to question their customers to find out where their funds came from, or be prosecuted because unbeknownst to them, a criminal used their services.
The modern regulatory system is draconian and unjust.
Court docket here: https://www.plainsite.org/dockets/38v97us7k/california-centr...
Interestingly, most documents are sealed by the court.
Is this something she could have registered as a business properly to avoid this fate?
To do this type of business legally, you have to comply with both federal laws and state laws. The federal laws basically say you have to register with FinCEN and comply with anti-money laundering laws, which mostly means you have a duty to know who your customers are and why they're transacting with you, to refuse to do business with people who are obviously laundering money, and to report suspicious activity to FinCEN. It's reasonably doable to comply with federal law as an small operator. However, this person didn't just fail to register, she also knowingly facilitated money laundering, which is illegal even if you're registered.
What exactly you have to do to comply with state law varies dramatically. In some states buying and selling bitcoin is basically unregulated, and in others there are onerous registration/licensing and financial requirements that are basically impossible to fulfill as an individual. Off the top of my head I'm not sure where California falls on the spectrum.
What exactly you have to do to comply with state law varies dramatically. In some states buying and selling bitcoin is basically unregulated, and in others there are onerous registration/licensing and financial requirements that are basically impossible to fulfill as an individual. Off the top of my head I'm not sure where California falls on the spectrum.
Anonymity is the purpose of LocalBitocins. There is no reason to use it with licensed services; just transact with a regular exchange.
The best way to avoid this sort of trouble seems to be "be a large enough company that your internal operations make it too confusing to work out who to prosecute".
> ... be a large enough company that your internal operations make it too confusing to work out who to prosecute
But as illustrated in Breaking Bad season 5 (the Madrigal situation for those who have watched it), things don't necessarily work out going that way either.
But as illustrated in Breaking Bad season 5 (the Madrigal situation for those who have watched it), things don't necessarily work out going that way either.
With all the money generated by the financial services industry in NY, I wonder if some future forward politician from another less prosperous state could find it in their heart to make their state a safe haven for new financial services based on cryptocurrency. It seems like the argument could be made that it'll create a better set of jobs than that foxconn deal in Wisconsin.
Realistically, probably not. Compliance with a lot of these types of laws is challenging and at times murky (especially in new areas).
That being said, from a practical perspective, ignoring compliance requirements in your area of business for whatever reason can lead to these outcomes. Make dangerous choices win dangerous prizes.
That being said, from a practical perspective, ignoring compliance requirements in your area of business for whatever reason can lead to these outcomes. Make dangerous choices win dangerous prizes.
You can run to anarcho-libertarian-utopian ideals, but you can’t hide from the fact you still live under actual laws against such things, whether or not such laws are just.
If they really believe in their ideals, they should do the hard work to change the laws in their favor, or cleverly use already existing ones, instead of childishly isolating themselves from society and the government as outlaws.
There is a precedent for this: the 18th and 19th century religious communes -- some of them anarchist -- had popular support and were able to change US laws so that they could avoid taxes and live in peace as gated utopias in the way they wanted -- because they didn't antagonize the rest of society or the US government.
Or, put another way, they were anarchists that did politics maturely and succeeded (even though their utopias didn't).
There is a precedent for this: the 18th and 19th century religious communes -- some of them anarchist -- had popular support and were able to change US laws so that they could avoid taxes and live in peace as gated utopias in the way they wanted -- because they didn't antagonize the rest of society or the US government.
Or, put another way, they were anarchists that did politics maturely and succeeded (even though their utopias didn't).
Utopian societies in pre-20th century USA were typically located in isolated settlements. Armed conflict was typical unless it was a group specifically dedicated to nonviolent ideals. Cf. the "Mormon wars" and pro/anti abolitionist movements in Western territories
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localbitcoins.com has been on the radar of federal law enforcement for years. They routinely did (and maybe do) stings off the site to catch unlicensed traders. If I were the site's operators I'd be extremely wary of ever traveling to the United States.